The fight against corruption

The fight against corruption

In the battle against corruption, it is important that economists do not let lawyers dominate entirely, Professor Tina Søreide means.

The appointment of corruption expert Tina Søreide as professor of law and economics at the Norwegian School of Economics (NHH) is a sign of the times. This field is so young that the newly appointed professor has followed its development pretty much from the beginning. For a long time, lawyers have dominated the field, but now it is time economists are afforded more space and bring the findings into focus, she says.

Early history

"Economists have not always regarded corruption as a problem," says Tina Søreide at the Department of Accounting, Auditing and Law. The current focus on corruption only started in the mid-1990s," she points out.

Professor Tina Søreide, Department of Accounting, Auditing and Law
Professor Tina Søreide, Department of Accounting, Auditing and Law.

"At the time I was taking my master's degree, and the President of the World Bank, James Wolfensohn, had just held his now famous Cancer of Corruption speech. It was a paradigm shift for the field," says Søreide.

Adverse effects

The UN, OECD and Transparency International had already started working on this issue, but Wolfensohn and the World Bank put the topic on the political agenda – with an ensuing demand for research.

"Obviously, bribery had not been regarded as unproblematic prior to this, but there was a deep-rooted view that the damage was of a general nature. Several economists described corruption as a pragmatic solution in the face of a heavy and inefficient democracy in order to achieve welfare-enhancing trade and get investments to work," says Søreide.

The legal developments in this field since the 1990s have been impressive, but it takes time to change attitudes. For example, it was only last year that the G20 countries agreed to accept that corruption is harmful.

International conventions

The turn of the millennium saw international momentum building up for anti-corruption legislation, a movement of which Norway was a part. Rules on bribery were incorporated into the Norwegian General Civil Penal Code as a result of Norway signing the Council of Europe's criminal law and civil law conventions on corruption.

Almost simultaneously came the OECD convention calling for prosecution at home of bribery offences committed abroad.

"This was not an agenda that Norwegian politicians had campaigned for, but rather one that was thrust upon us from Europe and the USA," says Søreide.

NHO in shining armour

There is one Norwegian organisation she will salute for having been among the first to adopt a proactive attitude towards corruption.

"The Confederation of Norwegian Enterprise (NHO) was one of the key players in getting anti-corruption on the agenda in Norway. I only discovered this when I approached NHO to ask if they would help me with data collection for my doctoral thesis".

NHO initially said they would, but when she later decided to extend the survey to the entire Nordic region, they said that this would probably be difficult: trade organisations in the other countries were generally reluctant to bother their companies with measures against bribery.

When Søreide later started working at the World Bank, she saw how things worked in many other countries and realised that NHO had played a unique role.

Obviously, bribery had not been regarded as unproblematic prior to this, but there was a deep-rooted view that the damage was of a general nature

Professor Tina Søreide, Department of Accounting, Auditing and Law

By comparison, the US Chamber of Commerce has attacked anti-corruption campaigns on several occasions and written critical reports claiming anti-bribery rules in the USA would damage US interests.

Norway in Angola

In a globalised world, economics is inextricably intertwined with politics.

In 2014 Søreide stated the following in Forbes magazine: "When the population is trapped under corrupt political systems, the international community has to act and exert pressure on the government, and not keep treating it as totally legitimate (despite its resources or military position)."

"Take Angola," says Søreide.

The Norwegian state-owned oil company Statoil is present in Angola and has been criticised for making payments to a non-existent research centre. Søreide knows the situation in Angola and believes that the vast majority of the population is caught in a poverty trap created by the kleptocratic regime, which is totally authoritarian and corrupt.

Bleak picture

"The authorities in Angola are doing a lot to improve their image and are trying to appear positive to the companies that operate there. But when we look at the data we have on governance, human rights and development, the picture is bleak," says Søreide.

In these kinds of situations, corruption often falls between two stools, in her opinion. Public corporations defend themselves by claiming they cannot interfere in political affairs and that they are acting in compliance with the legislation and the contracts they have signed. At the same time, Norwegian politicians are keen not to override state-owned companies.

"While Norway is growing ever richer through business in countries with corrupt leaders, no one is taking responsibility for the issue of corruption."

Responsibility?

Although the international cooperation to combat corruption has come a long way, there is still some way to go before we have a political cooperation that can handle such large challenges of the authority in individual countries, says Søreide.

"Does Statoil have a broader responsibility in Angola?"

"Statoil is only one piece in a large puzzle, and they generally do the right thing. They allow unions, they promote safety, they take environmental measures, etc. The fact that the revenue that they transfer to the Angolan state does not benefit the country as much as it could is beyond their control. Nevertheless, it is clear that they have a responsibility to ensure that any transfers other than taxes are not covert bribes."

And if anti-corruption really is an objective, Søreide elaborates, it is strange that Statoil has agreed to enter into a partnership with a company that has hidden owners – as it is not unreasonable to suspect that these owners have close ties to the president.

This is important to ensure that whistleblowers are taken seriously – so that business leaders see that they are better served by reporting criminal offences than by attacking the whistleblower

Professor Tina Søreide, Department of Accounting, Auditing and Law

Rules and consequences

According to Søreide, part of the challenge in connection with enforcing anti-corruption rules is that corruption is only defined in the General Civil Penal Code. This underlines the gravity of the offence and allows for a broad spectrum of investigation techniques, but also entails strict requirements regarding evidence and guilt.

Thus, many cases end in acquittal even though it is clear that wrong has been done.

The NHH professor discusses this issue in her new book Corruption and Criminal Justice. In order to make progress in anti-corruption work, she believes that economists and lawyers must work together better.

"Lawyers are generally happy when they have managed to get a law passed, but it is not a real result until we see an actual effect. Almost half of the countries that have introduced rules to combat bribery offences committed abroad have not had a single case brought before a court," says Søreide.

Economists have more tools

Economists have more tools that can be used in the fight against corruption. They are better than lawyers at identifying the importance of information and who has incentives to respond to something that is wrong.

"This is related to how decision-making processes ought to be organised. There is general consensus that we should avoid individuals being able to control alone who receives benefits. But it is also important to promote the incentives for various observers to report matters, for example through rewards, clearer allocation of responsibility and sanctions against those who choose to remain silent."

Søreide also believes it is possible to motivate the parties involved to report criminal activities that they themselves are involved in, as long as there are predictable benefits. Lawyers and economists ought to work together to arrive at better solutions here.

Falling short

It is time to accept negotiation-based, criminal-law reactions in corruption cases and draw up rules for this, according to the professor.

"Enterprises must have stronger incentives to keep checks on their own activities and good opportunities to report matters if something goes wrong. This is important to ensure that whistleblowers are taken seriously – so that business leaders see that they are better served by reporting criminal offences than by attacking the whistleblower."

She believes we must recognise that the traditional criminal-law approach falls short in the face of business-related corruption. Investigating and finding evidence of corruption in international organisations is like looking for a needle in a haystack.

"We must get the detection and prosecution processes to work better and also consider how various civil-law interventions might supplement criminal law. Collaboration between economists and lawyers is essential to promote incentive-based solutions, at the same time as fundamental legal principles and rights are protected," says Søreide.

This article was first published in NHH Bulletin 1/2016. Text: Bendik Støren.

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Published: 3 April 2016 12:53, updated: 3 April 2016 13:04